Oil’s historic crash below zero looked
increasingly like an aberration as the June contract rose for a
fourth day in its last session of trading before expiring.
Amid growing signs of a nascent recovery in demand,
deepening production cuts and optimism that the world is getting
closer to finding a vaccine for the coronavirus, futures in New
York rose around 1% past $32 a barrel. The July contract, which
was a lot more active, edged higher.
With open interest in June futures at a fraction of later
months and U.S. storage facilities no longer full to the brim, a
repeat of the collapse that sent the front-month West Texas
Intermediate contract to almost $40 a barrel below zero looked
unlikely. In another sign traders aren’t worried about a sharp
plunge, the premium to pay for out-of-the-money puts on WTI
versus calls fell to the lowest since early March, just before
the price war kicked off.
Chinese oil use is almost back to pre-virus levels, while a
jump in Indian fuel sales shows the worst may be over there as
lockdown restrictions are eased. Italians were allowed to go
back to restaurants and New York is set to open a sixth region
as some of the hardest-hit areas in Europe and North America
move ahead with restarting their economies. Crude also got a
boost on Monday after American biotechnology company Moderna
Inc. said its vaccine showed signs it can create an immune-
system response to the virus.
On the supply side, shale oil output from the U.S., the
world’s biggest producer, is forecast to fall to the lowest
since late 2018 next month, according to the Energy Information
Administration. There’s also been a “stunning reversal” in OPEC+
shipments so far in May, data intelligence firm Kpler said,
after the alliance’s deal to curb production kicked in at the
beginning of the month.
“Optimism is being expressed across all markets, not just
oil but base metals are rallying and we’re seeing good support
from equity markets,” said Michael McCarthy, chief market
strategist at CMC Markets Asia Pacific. However, “markets may be
running ahead of the facts in thinking the economies will be
back on track quickly once lockdown measures are lifted” and
there’s a risk WTI could drop in the short term, he said.
WTI for June delivery rose 1.4% to $32.25 a barrel on the
New York Mercantile Exchange as of 7:41 a.m. in London, while
the more active July contract added 0.6% to $31.83. The front-
month contract settled above that for July on Monday for the
first time since January, signaling concerns over storage
capacity in the U.S. have eased.
Brent for July settlement climbed 0.3% to $34.91 a barrel
on the ICE Futures Europe exchange after gaining 7.1% on Monday.
The global crude benchmark traded at a $3.08 premium to WTI for
the same month.
Chinese oil demand has recovered to about 13 million
barrels a day, according to executives and traders who monitor
the country’s consumption. That’s just shy of the 13.4 million
barrels a day in May 2019 and 13.7 million barrels a day in
December. The overall number would be higher were it not for
jet-fuel demand, which is still running well below a year-
earlier level, they said.
Bloomberg